Foundation Impact Investing: Progress and Opportunity

By Jessica Droste Yagan

Last month, I attended the Mission Investing Institute (MII) at the Kresge Foundation in Troy, Michigan. Hosted by the Mission Investors Exchange, the MII is a “boot camp” of sorts for foundation leaders who are in the process of building or activating impact investing strategies. (Their annual conference will be coming to Chicago in 2018!)

To me, it’s a no-brainer that ALL capital designated for charitable purpose should be optimized to create public good (not just the grant dollars). I have been heartened to see more and more foundations dipping their toes in this space. At the conference, I saw great progress in two areas in particular: mission-related investments (MRIs) and place-based program-related investments (PRIs).

On the endowment side (MRIs), foundations are becoming more aware of the impacts of the investments in their endowment and how those impacts align (or not) with the foundation’s mission. Many are also intentionally investing in companies, funds or financial instruments that screen out negative impacts (socially-responsible investing) or drive positive impacts. Now, it’s easier than ever to learn from and follow leading foundations in this area. Foundations like the MacArthur Foundation are making impact investments and sharing their lessons learned. There are also a plethora of strategies and advisors who can help foundations with MRIs.

On the disbursement side (PRIs, as a complement to grants), foundations are being more flexible with the type of capital that will create impact. Most foundations actively investing in PRIs are doing so through place-based strategies, meaning they are making investments for the development of jobs or infrastructure in a very specific location. It helps that a well-established and credible network of Community Development Finance Institutions (CDFIs) are able to act as intermediaries for foundations who don’t have the on-the-ground network or expertise to do this. For example, the Northwest Area Foundation established its Native CDFI program to cultivate CDFI partners, funding, and networks necessary for investing in Native American communities.

Both MRIs and place-based PRIs are now well-worn paths that other foundations can jump into with confidence and start impact investing right away. On the other hand, I observe that there has been much less progress by foundations focused on other types of non-place-based impact, such as impact in underrepresented leadership (people-based impact) and what a company’s product does for the world (product-based impact).

When it comes to investing in underrepresented entrepreneurs, I’ve seen a lot more talk than action. Foundations want to strive to even the unbalanced landscape of money and power in entrepreneurship and fund management, yet only a handful have started MRI or PRI carve-outs for minority- or women-led startups or funds. An exception is the W.K. Kellogg Foundation, who recently made a $3M program-related investment into The Entrepreneurs of Color Fund, designed to increase economic opportunity for underserved populations in Detroit by providing minority-owned businesses with greater access to capital and business assistance.

Product-based impact is another area only a few have started considering. For example, the Rockefeller Foundation has invested in the IGNIA Fund, a fund that works with entrepreneurs who are bringing better products and services to the emerging middle class in Latin America. Yet many foundations have yet to clearly articulate this strategy as an impact focus. I believe all foundations should consider how products (especially technology) can be leveraged to drive better mission outcomes in their work. There are opportunities to develop better tools across many fields of impact, including but not limited to education, healthcare, and sustainable agriculture.

Of course, I’m biased. At Impact Engine, we invest in product-based impact. By investing in technologies that can scale and have impact in many local communities, we believe we are leveraging our dollars for place-based impact over time. With deep connections in our hometown of Chicago, we can help portfolio companies based elsewhere to develop meaningful partnerships and customer relationships in our community, which brings their impact to the community that we call home. This is a role that foundations could play as well, by investing in product-based impact and leveraging their local networks and relationships to bring those impacts to the places it cares about. Our portfolio companies have benefitted from the support and investment of a few leaders in the foundation world, and we believe the world is better off when funders are willing to be on the leading edge of the impact investing movement.

For example, one of our portfolio companies, ThinkCERCA, was founded by a former Chicago Public Schools (CPS) teacher, Eileen Murphy, who developed a methodology for teaching critical thinking. She had great success using that methodology with her students, and, later, across the CPS system. But she was convinced she would never reach the scale of impact she aspired to unless she built the methodology into a technology platform for schools. Today, ThinkCERCA’s innovative, school-wide approach to literacy instruction has been proven to raise achievement by accelerating students’ reading growth by an extra 1.5–2.5 years. While the ThinkCERCA product is now sold and used in over thirty states in the U.S., it still translates to on-the-ground, local impact in each of those places.

So much more can be done in this space, and we’re excited to be part of the journey. What do you think is missing in the field?

Did you like this post? Sign up for our newsletter and we’ll send you the latest impact investing and Impact Engine news each month.